Lobbying records reveals loopholes, reporting gaps and errors

Almost daily, Arizona politicians face an army of lobbyists who are ready to spend money on dinners, drinks, parties and travel, aimed at currying favor and eventually bending the public policy agenda toward the will of their sometimes deep-pocketed clients.

But the vast majority of lobbying activity in the state is reported without any mention of who is benefiting from the money or the nature of the expenditure, an Arizona Capitol Times analysis shows.

In 2011 and 2012 alone, 60 percent of the expenditure reports required for lobbyists and their organizations do not list the recipients of lobbying money. In dollar amounts, that comes out to $2.37 million dollars — or about 92 percent — of the $2.57 million dollars reported as a lobbying effort during those years.

All the lobbying activity must be reported to the Secretary of State’s Office, which in theory lets the public see who is spending money on which politicians and on behalf of which organizations. In reality, the records are incomplete, mainly because of loopholes that are permitted by reporting laws. And the documents are marred by errors, suggesting a nearly complete lack of oversight.

There are several reasons so little of the money lobbyists spend to influence policy can be linked to a specific lawmaker or public official.

Lobbyists frequently use an exemption for reporting small expenditures, or another exemption governing expensive special events. Creative lobbyists employ strategies and logic to stretch those exemptions to their legal limits, and possibly beyond.

While these two exemptions make up a large majority of the expenditures on unnamed beneficiaries, there are other examples of lobbyists perhaps not complying with the laws.

Even though violating the state’s lobbying reporting laws is a Class 1 misdemeanor, virtually no investigations into potential violations are ever launched.

Big events, little reported

A main reason lobbyists don’t report who is eating dinners, drinking beverages, taking trips and using tickets is simple: If it’s a “special event,” lobbyists don’t have to list it.

A special event is defined in law as one in which all members of the Legislature, either of its chambers or any legislative committee are invited. Special events can include parties, dinners, entertainment and other functions, including sporting events.

For such events, lobbyists need not report who attended. But they are required to report a description of the event, the date, location and price, as well as the name of the legislative body that was invited.

Special event spending accounted for $1.47 million in 2011 and 2012, or 62 percent of all the money reported without a mention of who it was intended to influence.

Among the most common special events are lunches on the Capitol lawn, which happen almost daily during the legislative session.

In 2011, the Barrett-Jackson Auction Company reported spending $295,000 on lobbying at its annual gala before its car auction in Scottsdale. It was the most expensive special event reported that year.

That equals more than $3,200 per lawmaker, though there’s no way of knowing which lawmakers attended the event. Barrett-Jackson did report that all 90 lawmakers were invited.

Jason Rose, of Rose Moser Allyn Public and Online Relations, which represents Barrett-Jackson, said the company reported the total cost of the event as a lobbying expense out of an abundance of caution. The actual benefit that lawmakers received was closer to $5,400, based on $60 tickets made available to all 90 lawmakers.

Rose said Barrett-Jackson invited lawmakers in order to raise the profile of the event and ensure that they are aware of the benefits that come with hosting the world’s largest car auction. He noted there are also more concrete reasons. For example, when lawmakers are debating emission standards, they will know a little something about classic cars, which often cannot meet the standards.

But in 2012, Barrett-Jackson discontinued the practice of inviting lawmakers because it became superfluous, he said.

“If there becomes a particular need because we have an acute problem where you need to bring someone in to say, ‘Look, we need you to see where the 10,000 people sit, and this is the auction block and this is where the cars come in,’ we’ll do that as an educational tour. People don’t need to be entertained to do that,” Rose said.

Lobbyists also pay for lawmakers to attend special events such as conferences sponsored by groups including the American Legislative Exchange Council (ALEC) or the National Conference of State Legislatures (NCSL).

In 2011 and 2012, lobbyists reported spending nearly $50,000 on special events related to ALEC, much of it for lawmakers to attend the organization’s conferences. None of the legislators who attended are named.

In the same two-year period, lobbyists reported spending about $5,300 for NCSL events, though there is no record of who received the free trips.

The chart below shows the breakdown of lobbying reports in 2011 and 2012. Lobbying activity with a beneficiary listed is represented in green. Lobbying activity without a beneficiary listed is represented in orange.

Small money, big gaps

Small expenditures slide through one of the largest loopholes in the statutes governing lobbyist reporting. There are several different ways lobbyists take advantage of it.

This sort of spending accounts for a small slice of the total dollars spent with no beneficiary listed — about 3 percent in 2011 and 2012. But it’s such a frequently used tool that it accounts for roughly 35 percent of the records that don’t name beneficiaries.

For expenditures less than $20, lobbyists are not required to report what they bought, when they bought it or for whom they bought it.

A lobbyist who takes a lawmaker out to a lunch that costs less than $20 does not have to list the lawmaker’s name. If a lobbyist holds weekly meetings with a single lawmaker at Starbucks and spends $15 on a coffee and a scone each time, it could add up to hundreds of dollars of free coffee and scones. But the lawmaker never has to be named.

And, that’s just the tip of the iceberg. The real value of the loophole is for contract lobbyists, who can use it so that they almost never have to report who they are spending money on.

A contract lobbyist who represents 10 different clients can take a lawmaker out to dinner at a fancy restaurant, spend $199 on drinks and food and never have to report who they wined and dined.

By splitting the total cost of the meal among the lobbyist’s 10 clients, each only has to report spending $19.90 — thus not triggering the need to disclose who received the fancy dinner.

For example, the Secretary of State’s Office indicated it has had several conversations with lobbyist John Mangum of Phoenix about how he is reporting his aggregate spending and they suspect he is using the exemption by cutting up expenses among his different clients. Mangum had the largest sum of aggregate spending under $20 in any one quarter during the past two years. In the fourth quarter of 2012, he reported spending more than $1,600 in amounts less than $20 at a time.

Though the Secretary of State’s Office said that’s not the way it would like the expenses to be reported, it doesn’t believe the practice is illegal, and said there are differing valid interpretations of the law.

Mangum said that, usually, when he takes a lawmaker out to dinner, he pays for it himself and reports that he went to dinner with that lawmaker. When he occasionally charges it back to his clients, he does split the costs among them.

Mangum said he always reports his expenses accurately and according to the law, and if lawmakers decide to change the law so that he has to report a beneficiary with every single expense, he would oblige.

“I’ve been doing this a long time, and to the best of my knowledge, I’ve always reported everything accurately and according to the law… If the Legislature, in its infinite wisdom, wants to change the law, I’m OK (with that),” he said.

He said his high aggregate spending is likely because, when he does grab a meal with lawmakers, they eat at the cheap Department of Economic Security cafeteria near the Capitol. A cheeseburger, fries and a large soda there costs $7.17 after tax.

Data entry and reporting errors

Even if the special event and aggregate spending is not considered, 81 percent of all other lobbying dollars do not have beneficiaries listed in the reports. These expenditures come mostly in the form of large-dollar reports, so they represent only about 3 percent of all of these filings.

An inspection of several of hard-copy reports shows this is mostly the result of incorrect reporting by filers and, to a smaller degree, data-entry errors made by the Secretary of State’s Office.

Amy Chan, elections director at the Secretary of State’s Office, explained that these errors have largely gone unnoticed because of the lack of oversight built into the system. After reviewing the errors, she also said she intends to have them all corrected.

Correcting these errors could result in all non-aggregate, non-special event spending having beneficiaries attached to them, as Chan said should be the case.

Chan noted that these errors highlight the reason that Secretary of State Ken Bennett wants to see continued improvements in reporting and oversight, and that pointing them out will hopefully help advance the discussion about ways to make the system better.

Weaknesses in the system

Officials at the Secretary of State’s Office who oversee the lobbying reporting system are familiar with the ways lobbyists can skirt the requirements.

They say the root of the problem is that the office serves mostly as a receptacle of reports, not an auditing or enforcement agency.

There are several reasons the office cannot properly monitor, audit or investigate lobbying reports. First, it lacks the authority in state law to audit the reports. It is only required to forward to the Attorney General’s Office any matter it has reason to believe constitutes a violation of the law. Second, it lacks the manpower. Reviewing the thousands of reports filed each year would take a cadre of auditors, which the office doesn’t have.

Chan likens the lobbyist reports to state campaign finance reports in that the reports are assumed to be accurate.

Any investigation into a possible violation of the law either has to begin with a glaring problem that the staff stumbles across. Or someone must file a complaint with the office.

The likelihood of finding problems by chance is extremely small, Chan acknowledges. When the office does find problems, it generally asks the lobbyist to fix the errors and does not forward the matter to the Attorney General’s Office for further investigation.

But perhaps more importantly, complaints are almost never lodged over lobbying reports. That reflects a key difference between campaign finance reporting and lobbyist expenditure reporting.

When it comes to campaign finance reporting, there is a strategic advantage for opponents to closely monitor each other, scouring reports looking for any sign of errors. The adversarial nature of campaigns creates an incentive to do so because an opponent’s mistakes can lead to disqualification or harsh fines.

In contrast, in the past decade, only a handful of lobbying complaints have been forwarded to the Attorney General’s Office for further investigation.

Ripe for errors

A $7,272 meal enjoyed by Rep. Steve Montenegro, $4,564 for two flower arrangements given to Treasurer Doug Ducey and former Sen. David Lujan, and more than $60,000 vaguely reported by the Cancer Treatment Centers of America as benefiting Secretary of State Ken Bennett in the past two years were the most egregious oddities found during the Capitol Times analysis.

Each of these examples turned out to be reporting errors, and each was corrected after the Capitol Times asked questions about them. But their presence shows that nobody is checking for even the most obvious error.

Montenegro was confounded about the dinner that put him at the top of the list of recipients of one-time expenditures. And for good reason. Further research turned up three other meals listed as benefiting former Sen. Frank Antenori and Reps. David Stevens and David Gowan, each costing $72.72, paid for by the same lobbyist on the same day. That suggested that the $7,272 for Montenegro’s meal was simply a typographical error.

The $60,458.92 reported as being spent by the Cancer Treatment Centers of America on Secretary of State Ken Bennett in 2011 and 2012 should not have been reported as lobbying expenditures because it is a stipend provided to Bennett for his service on the organization’s board of directors, his office explained.

Chan said this sort of incorrect reporting happened because of an abundance of caution, and that she has frequently told lobbyists that over-reporting is always better than under-reporting. Still, she said that such a large, incorrect filing should be corrected.

Chan noted that both Bennett and Calderon correctly list these payments on their financial disclosure statements, but they didn’t need to be listed under the lobbying category.

Correcting the flaws

Nearly every year, lawmakers introduce bills to tighten reporting requirements on lobbyists, and every year, the bills die before becoming law. This year was no different.

Republican Sen. Michele Reagan of Scottsdale proposed a plan to merge the Citizens Clean Elections Commission with the Secretary of State’s Office. A goal would be to give the commission authority to act as the investigatory, compliance and enforcement body for the registration and regulation of lobbyists.

Another of her bills would have required lobbyist expenditure reports to be filed monthly, instead of quarterly, and would have decreased the threshold for aggregate reporting to $10 from $20. That bill would have also required lobbyists to provide legislators with a declaration of the value of certain expenditures. It would have required lawmakers to annually report each expenditure made by a lobbyist from which the legislator received a benefit.

Though both bills passed their assigned committees, they were never scheduled for a debate and vote from the full Senate.

Last year, the Legislature approved a bill that, among other provisions, would have allocated $500,000 to the Secretary of State’s Office to develop electronic database systems to systematically track the required lobbyist reports.

But before the bill was approved, the provision requiring the office to develop the database system was modified to apply only if money was made available from the Legislature, and the $500,000 in funding necessary to build the database was never appropriated.

So of all the bills that were proposed this year, none has done anything to address flaws in the reporting of lobbyists’ expenditures.

This is the first in a three-part series. Next week, the analysis will explore different ways of interpreting the money reported, which lobbying firms and lobbyists spend the most money, which lawmakers receive the most attention from lobbyists, and how different lobbying tactics can be observed in the reports.

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